5.28 Selling Physical Goods

The ecommerce benefits of transferring an existing business online are obvious: the company is building on established skills and using existing suppliers and customer base.

No one should underestimate the resources needed to bring an ecommerce store into being. Even with an 'all-in hosting' an 'out of the box' solution, or third party merchant services, it takes time, effort and flair to create a compelling website. And a good many more months to set up warehousing, office accommodation, fulfillment arrangements, staffing and a legal presence. After that comes the long cash drain while traffic and sales slowly build.

Nonetheless, planned and built properly, the resulting e-shop can be just as effective as its big chain counterpart — provided it remembers the rules of Internet selling.

Most of the obvious things have now been done. You can't compete with the likes of Amazon Books or eBay auctions unless you have their millions to play with, and even then you're very unlikely to catch up. Your opportunities lie in what they cannot accomplish, in what is called niche marketing. Every city can support a few bookstores, but never one that severely restricts its stock — to books on antiques or tropical fish, for example. Yet these would be eminently suited to the Internet. Even Amazon carries only the smallest fraction of what's available, and devotees would switch to the specialist outlet, knowing that what wasn't stocked by you simply wasn't to be had. Your catchment area will be larger, which means that your selling line has to be better researched and focused. In short, you have to think long and hard about the market you're in. The point is worth laboring. To compete in the free-for-all of the Internet, you need to:

1. Establish that sufficient demand exists for your product or products.
2. Research and define your own market niche.
3. Sell in a manner or at a price that your competitors cannot or would not wish to match, e.g.
a. unrivaled selection.
b. enthusiastic knowledge and expertise.
c. personalized service.
d. providing useful help sheets.
e. with detailed information on products.
f. superb after sales service.
4. Maintain your selling advantage when:
a. sales really take off
b. competitors move against you.

Current Picture

The great killer is the advertising required in an increasingly overcrowded marketplace, which generally keeps customer acquisition costs above $40. Customer service — email and telephone support, clear returns policies, guarantees, helpful advice on site — are therefore critical in courting the repeat customer. Larger sites will need deep pockets for the years in which it takes to build brand awareness and loyalty.

Competing in a Market Niche

Suppose you find your proposed market niche is already occupied, which is often the case. Other companies have got there first, and there seems hardly the opportunity for another player. Is that the end of your business plan?

It can be. There's clearly no point in throwing good money after bad, and you'll have the good sense to swallow your disappointment and find something else.

But before abandoning the plan, look carefully at the competition. Have they got it right? Is there something you could bring that would outdistance them — in presentation, range of products, sales advice? You'll need to be very careful, as you're going to further subdivide the market, and competitors are certainly not going to stand idly by. But a detailed appraisal may show you're still in with a chance. Possibly their stock is not fully illustrated or described. Or their ordering system is a disaster. Or they're not promoting themselves very well. But just make sure that you really can do better, and have the necessary resources. Anything they've put in to their e-store you will have to double: time, money, contacts, inside information. Rehash the business plan, and don't underestimate the challenges.

Corporate eBusiness

Corporations face their own problems, and planning here is generally on a project level. The company will present its goods online with a shopping cart, a portal or an auction site. The server can be run by the company or by a third party web hosting company. A bulletin board, online chat, a company blog and/or social media site may be useful additions.


Buy from Local Suppliers

Companies won't tie up space and capital by carrying more stocks than absolutely necessary, and many therefore enter into arrangements with local suppliers. Orders are phoned through as needed, collected, packaged and dispatched. Stock levels are communicated to them on a regular basis, and companies have backup suppliers just in case.

Drop Ship from Distributors

The above arrangement suits many fledgling companies, but it's still a nuisance, taking up much of the working day. An alternative becoming increasingly attractive is drop shipping. Suppliers handle specific brands, and will ship your orders directly to the customer. You just fax or email the drop ship company with the order, and they package with your logo, add the delivery slip, and send it off. Of course there's a charge for the service, and you have to locate the companies carrying the products you sell. Delivery is very much in their hands, moreover, and they may not keep you fully informed on items temporarily out of stock. Any delays will reflect on you, as customers are unaware of the shipping procedure.

Employ a Fulfillment Company

Further down the road is a fulfillment company. The contract you draw up with a fulfillment company requires the company to keep all your products ready for immediate delivery. You email or fax the order — or have it redirected automatically from your website — and the fulfillment company does the rest. Fulfillment companies are efficient, but not cheap.

Fulfillment Companies: Terminology

Fulfillment companies charge on various bases. Below is the usual terminology. Do your sums carefully.

Setup: initial charge to cover cost of preparing to take your products.
Order processing: usually a cost per order, plus a cost per item in the order.
Order minimum: what you'll have to pay each month, even with few orders.
Receive merchandise: fee for checking shipments.
Product assembly: fee for assembling consignment for you.
Restocking: fee for checking inventory level and reordering as necessary.
Storage: cost of storing items, per pallet or cubic foot.
Returns: also called a restocking fee: charge for items returned by customers.
Minimum contract: minimum period your contract runs with fulfillment company.
Transaction: charge for handling credit card transactions for you.
Shopping cart services: fee for linking your shopping cart orders directly to the fulfillment house.

Taking the Money

The shopping cart will handle payment details, linking through to your merchant account, or an Internet payment provider.


1. What, in terms of increasing outlay, are the best ways of selling physical goods over the Internet?
2. Describe your unique selling proposition: i.e. how you will beat the existing competition in some market sector of your choice.
3. How will you fulfill orders? Give the options.
4. List and explain fulfillment company terminology.

Sources and Further Reading

1. Ecommerce Information: listings.
2. Ecommerce Marketing: listings.
3. Business Information: listings.
4. 5 Planning Tips for Physical Retailers to Migrate Online by Bret Williams. Practical Ecommerce. August 2011.
5. Ten Steps to Migrate Your Site to a New Ecommerce Platform by Michael Stearns. Practical Ecommerce. June 2010.
6. How Can You Make Money with Drop Shipping in 2012? by Duran Inci. Optimum7. January 2012
7. 10 Drop Shipping Resources by Sig Ueland Practical Ecommerce. December 2012.
8. 30 Shipping Resources for Small Businesses by Sig Ueland Practical Ecommerce. December 2012.
9. Ecommerce Fulfillment Order Fulfillment Can Make or Mar an Ecommerce Business by Ajeet Khurana. About.com Guide.
10. Drop Shipping: The Good and The Bad by Armando Roggio. Practical Ecommerce. May 2012.
11. 10 Low-Budget Ways to Sell Internationally by Gagan Mehra. Practical Ecommerce. February 2012.
12. 5 Reasons to Consider Fulfillment Services by Armando Roggio. Practical Ecommerce. November 2011.
13. How To Price Shipping and Handling Fees by John Lindberg. Practical Ecommerce. September 2010.
14. Taming the 'Wild West' of drop-shipping by Paul Demery. Internet Retailer. June 2012.
15. Online Retailers — Is Your eCommerce Store Ready For The Holidays? eCommerce Order Fulfillment Blog. October 2012.
16. Marketplace Mania, Part 3: Choosing the Right Marketplace by Dale Traxler. Practical Ecommerce. November 2012.
17. Discover the Secret to Making Money Online. Dropship Bible. 297 pp ebook.
18. Drop Shipping: The Easiest Way to Sell Online by Mark Hayes. Shopify. September 2012.
19. The Starter's Guide to Effective eCommerce Fulfillment by Michael Koploy. Software Advice. September 2012.
20. Multichannel Selling a Necessity by Dale Traxler. Practical Ecommerce. October 2012.